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Letting technology do the shopping

Using a combination of new technologies, a growing number of e-commerce companies can monitor their customers' shopping habits like never before.

Technology made a believer out of Christine Aguilera.

Her company, Skymall, recently decided to use software manufactured by Net Perceptions that analyzes a customer's purchase while it is being rung up. Based on the type of goods that are chosen, the system automatically suggests one or two other products before the sale is finished.

On one occasion, when a Skymall representative was on the phone with a customer who was purchasing six items, the company's system suggested that he might be interested in a lithograph of a golfer--even though none of his purchases had anything to do with golf. Right there, the shopper plunked down $200 for it.

"To our shock, the man said that he had thought about buying it while he was shopping," said Aguilera, Skymall's vice president of business development.

Welcome to the future of retailing, a world where consumer indecision is no barrier to making a sale.

Using a combination of new technologies, a growing number of e-commerce companies can monitor their customers' shopping habits like never before. And beyond just collecting information for targeted advertising, software programs can actively steer shoppers from one purchase to another--even when there is no obvious connection.

The Skymall experience illustrates why companies will brave escalating technological costs and potential consumer backlash because of privacy concerns to get as much information as possible about online shoppers.

The latter issue arose once again Monday when online music company RealNetworks admitted that it secretly kept records of the music its customers downloaded. The incident added fuel to the continuing debate over the way Internet companies gather information about customers and how they use it.

But the benefits of yielding such information, which have become clearer to individuals as they venture online, have led a new willingness to cooperate among shoppers. That has emboldened e-commerce companies, which spent an estimated $10 billion last year on customer relation systems and another $602 million on market research.

"From a marketing standpoint, this is the greatest thing in the world. You now have more information about customers than ever before," Jupiter Communication's online analyst Michele Slack said. "He who has the best data will be the winner in the end."

Putting "psychographics" to use
Retailers have always been willing to pay for insight into what made consumers part with their hard-earned dollars. Whether it was mailing lists, focus groups, or survey results, merchants have long sought to learn what goods they should stock, where they should offer them, and which types of people might want them. It was an inexact science at best, but the Internet is changing that.

A brick-and-mortar store may have kept records of what customers bought, but e-tailers can also track how long a customer shopped, record the items a customer viewed, and locate the precise spot where a customer, who may have left the store empty-handed, stopped shopping.

"If a brick-and-mortar store followed its customers around with video cameras, they could not get this kind of information," said James Markarian, senior architect at Informatica, a company that helps e-tailers collect and analyze customer information. "Any time you click on a link, that information is being stored somewhere. With that, companies can figure out what you did on a site."

Along the way, companies are learning how to tailor their sites to fit the likes and dislikes of each customer. For example, a shopper who purchased a dark-colored turtleneck from an online store could return to find that site's virtual racks filled with black and navy sweaters.

The information also allows companies to compare the data of multiple customers and look for similar buying habits among them. The companies can guess what one shopper might buy if they know that others with similar tastes have already purchased the item.

This kind of software can make calculated guesses because it has been programmed to spot customers who fit into identifiable groups, or clusters. For instance, data might show that 30-year-old men who buy self-help books might shell out big money on a cigar humidor.

Perhaps Amazon.com is the best-known company that makes use of such "psychographics," as this information is known in marketing parlance. A shopper who buys a book on mountain climbing at Amazon may very well see similar books displayed the next time he or she browses the site.

As is often the case with consumer information, however, such practices are rarely without controversy.

Amazon declined to comment on customer information, but the online retailer drew a measure of wrath in August when it announced that is was posting information on the goods purchased by employees at scores of companies, schools, and nonprofit groups. No names were published, but currently on Amazon's Purchase Circles, anyone can learn that the No. 1 book read by Apple Computer employees is "Apple Confidential: The Real Story of Apple Computer."

Amazon later allowed those employees who wanted to be excluded from Purchase Choices to have their names removed, but privacy advocates were still appalled.

"This is an example of a company not notifying how they were using the information beforehand," said Andrew Shen, a policy analyst with the Electronic Privacy Information Center (EPIC) in Washington.

Even more troublesome is the practice of consumer profiling in "real time"--the collection of information about customers as they shop, and in most cases without their full knowledge. In the case of RealNetworks, the company did not inform customers that they were monitoring the music they listened to or what would be done with that information.

"The fact is that most customers don't know that their information is being used without their permission all the time," Shen said. He added that EPIC is calling for federal legislation that will protect the privacy rights of Internet shoppers.

Some companies are believed to sell customer information surreptitiously, industry sources say. However, most analysts agree that many companies would not dare take the chance of getting caught and alienating their consumers.

"If you want to keep your customers, you've got to reassure [them] that you will guard their information," said Lynne Harvey, analyst with the Patricia Seybold Group. "If you're going to sell this information, you're going to ask permission from your customers first."

Anil Gupta, vice president of marketing at software maker Broadbase, offered another reason that most companies won't sell the information.

"If I know how to market to my customer, why would I share that information with someone else?" he asked rhetorically. "In the future, the people who implement this technology will have a huge competitive advantage over the ones who don't."